Can Mastercard keep it up?

Companies of all stripes are hurting. Just not MasterCard (MA). The New York-based “transaction processor” and card company painted a pretty sweet picture of what it expects in earnings going forward. As per Bloomberg:

MasterCard, the world's second-biggest credit card network, rose to its highest level in New York trading since going public in May 2006 after increasing its profit-growth target on expanding card use outside the U.S. The network expects net income to increase an average 20 percent to 30 percent annually over the next three years starting in 2009, MasterCard said today in a conference, compared with a previous goal of 15 percent to 20 percent.

This is great news for MasterCard and its shareholders. Here's why:

First, in 2008 and 2009 Wall Street had been expecting the company to earn $8.65 and $10.55 a share respectively (which suggests an almost 22% forecasted rate of growth). So this unexpected acceleration, from an already high base of earnings, is bound to draw more than a few eyeballs and generate some positive sell-side research.

Second, every quarter many fund managers generally look to jettison underperforming companies and to bulk up on companies that are both delivering and expected to deliver good news. Enter MasterCard. That window dressing toward the end of the second quarter could give the stock a nice goose as well.

Next, it’s important to note that this new growth rate seems quite competitive with Visa (V) which had, in conjunction with its fiscal second quarter numbers, touted its expectation of a “20% or greater” earnings per share growth rate. In turn, this may allow MasterCard to garner the multiple of earnings (or close to it) that Visa is presently enjoying. (Note that Visa currently trades at about 42 times the current year estimate of $2.03 a share, whereas MasterCard currently trades at about 35.7 times the current year estimate of $8.65 a share.)

Another point worth considering is that the growth rate MasterCard is banking on (pun intended) seems in large part predicated on its ability to continue to grow overseas. In fact, the aforementioned Bloomberg piece points out that “MasterCard generates half its revenue from overseas and is less reliant on the U.S. than Visa, which gets about two-thirds from domestic transactions.” This apparent diversity, if you will, may make it the better play, particularly since the U.S. consumer is so unpredictable as this point.

The flip side: This news can cut both ways. MasterCard just set the bar pretty high. If it were to fail to live up to those expectations, the stock could get hit - big time.

Shares of MasterCard were up more than 22 points, or almost 8%, the other day. While there was some fairly severe profit-taking on Friday, its upbeat outlook suggests the stock may be headed higher still over the next several weeks and months.

Long V and MA